Whether with clients, landlords, Government or competitors, disputes are a reality of commercial life. Examine the ways in which you as a bookkeeper can minimise your exposure.
In his paper Resolving Commercial Disputes Paul J Vincent (Forensic Director of Vincent Chartered Accountants) outlines his “10 Commandments” for how professionals can avoid disputes or at least protect themselves against a bad result flowing from a dispute. We now examine how some of these “Commandments” might apply to bookkeepers:
Don’t do anything you’re not qualified to do
Modern day bookkeepers offer a wide menu of services. Indeed ABN’s 2015 Bookkeeping Business Benchmark Report found that respondents (bookkeepers) offered a total of 16 different categories of services to their clients. Very few individual bookkeepers however would have the expertise across all these areas of practice.
Before branching out into new areas which a number of bookkeepers are now doing as data-entry becomes increasingly automated, ensure you have the required level of expertise – don’t do anything you’re not qualified to do. Refraining from doing anything for which you’re not qualified, includes offering advice to clients when and if they ask you a question, especially from ‘left-field’ (which clients are prone to do). Refrain from providing advice if you are at all uncertain – perhaps instead make a referral to an expert in the area. Your clients will thank you for it, and you may avoid trouble down the track.
Limit your liability contractually
Engagement Letters are contracts and agreements between two parties setting out the obligations of the customer (your client) and the service provider (you or your business). They are binding documents that can be used by courts and other bodies (such as the Tax Practitioners Board) should disputes arise between you and your client. As such they should be used to limit your liability for example by detailing:
- The specific services and the specific entities that you have been engaged to act for (clients may have several entities).
- The basis on which you will be providing your services: (e.g “Supplier invoices will be posted by the company’s staff and the bookkeeper will not be responsible for the accuracy of these postings. The bookkeeper will make reasonable enquiry of selected transactions and the company will supply explanations of particular transactions or copies of Tax Invoices as appropriate.”)
- Your expectations/requirements of the client and your policies. Note however that you cannot contract out of negligence, irrespective of any disclaimer clauses incorporated in your Engagement Letter or other documentation.
Obtain adequate insurance
Should a dispute result in loss, insurance is an essential piece in the risk-management puzzle. Professional Indemnity (PI) insurance provides cover from potential threats, such as claims or alleged negligence or breach of duty arising from an act, error or omission in the performance of your professional services.
If you are a registered BAS Agent with the Tax Practitioners Board you must have PI insurance as a condition of your registration. Your policy also must meet the Board’s minimum requirements. For those of you who are not BAS Agents or are not otherwise required to be registered, for example:
•You are working under the “supervision and control” of a registered Tax Agent or BAS Agent
•You are operating through our ABN BAS lodgement program, or
•You are only offering bookkeeping services that are not BAS Agent services such as data entry
…you should strongly consider PI insurance nonetheless. PI insurance remains a prudent and logical business choice for any professional including non-BAS Agent bookkeepers. By holding yourself out as a professional with certain expertise, your customers place reliance on the quality of your work.
Without insurance, regardless of whether you are a BAS Agent or not, you may be held liable in the event that your work contains errors or omissions. All told, without adequate insurance, you may leave yourself and your assets vulnerable in the event that a claim is made against you. For those that have PI coverage, be aware that some policies will only cover you for providing BAS Services.
Therefore, if you offer non-BAS services (e.g. lodgement and preparation of payroll tax returns etc.) you may need to expand your coverage. Indeed, it would be prudent to check-in with your insurer any time you commence to provide new services to clients. If you operate out of commercial premises or home-offices where clients are sometimes hosted, public liability insurance should also be considered.
This protects you from legal and medical costs that arise from incidents causing personal injury or property damage to third parties (such as clients) should you be found negligent. Finally, tax audit insurance should also be considered particularly by business owners. Accounting fees incurred during protracted disputes/audits with the ATO can quickly add up.
Limit your liability structurally
Quite a number of bookkeepers operate through a structure other than as a sole trader (more than one-third of bookkeepers according to ABN’s 2015 Bookkeeping Business Benchmark Report). If you operate as a sole trader or through a partnership structure you are personally liable for the debts of, or the claims made against, your business – this can leave your personal assets exposed in the event of loss arising from a dispute.
By operating through a company or trust structure however, you can generally escape personal liability. Of course, in choosing your operating structure there are many other factors to consider aside from asset protection such as tax minimisation, establishment costs etc.
Understand the legal environment in which you operate
As a bookkeeper there are at least three legal frameworks to be aware of:
1. Contract Law
As discussed earlier, your Engagement Letter is a binding document outlining among other things your and your clients’ obligations and the rules and parameters of your engagement. To avoid or minimise claims and disputes, observe the principles and your obligations outlined therein. On the flipside, be aware of your rights contained in your Engagement Letter should you need to enforce them.
2. Negligence Law
Under general law you can be found negligent (and suffer financial loss) if you have failed to take ‘reasonable care’ in carrying out the work you have been engaged to provide, where that lack of care has resulted in loss or damage to the client. The standard of care expected is that of a normal BAS Agent (taking into account the qualifications and expertise that registered Agents are required to have). Thus, BAS Agents will be held to a fairly high standard in negligence claims (you should therefore exercise due care in the performance of your duties).
On the other hand, non-BAS Agent bookkeepers will be held to a slightly lower standard. When dealing with complex issues or issues where you are not certain, it’s recommended that you document or retain records (e.g. emails) of the steps you have taken to work through such issues (e.g. consulted the client’s accountant or other expert in the field such as an industry association). In the event of a negligence claim being made against you, these records can then be relied upon as evidence to demonstrate that reasonable care was indeed taken by you.
3. Code of Conduct
Disputes can also arise with the Tax Practitioner Board if as a BAS Agent you have failed to observe your obligations including those outlined in the Board’s Code of Conduct. Familiarise yourself with the Code and with your other BAS Agent obligations.
Keep good records
If you find yourself in a dispute, either in the initial stages or at the ‘pointy end’ (e.g. in court) good records will be necessary to either bring or defend a claim. As a BAS Agent or bookkeeper, in terms of helping you in disputes, the maintenance of good records in the following areas is paramount:
- Records of oral advice provided to clients
- Records of steps taken to resolve complex issues (see earlier)
- Retaining copies of signed Engagement Letters
- Tax records, including signed client Activity Statement declarations (if the subject of an audit)
- Fair Work Australia records (workplace disputes if you are an employer).
Maintain honesty and integrity
Acting honestly and with integrity not only minimises the chances of a dispute arising in the first place, but can also mitigate the damage when a dispute does arise. For example, having a good history with a client or with the ATO is often taken into account when those parties consider whether to escalate a matter (e.g. into full litigation/audit), or resolve it by less extreme means, or let it go altogether.
Acting with honesty and integrity is also a requirement of the Code of Conduct contained in the Tax Agent Services Act. While most professionals have good intentions, often in the accounting, legal or bookkeeping professions in particular, clients apply pressure on their advisors to act outside the law (e.g. make claims without invoices) from time-to-time. Where this occurs, you need to be firm and explain your obligations as a BAS Agent and, if necessary, not act for a client in relation to a particular matter.
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